Schiff CNBC Squawk Box 6-13-06 [Flashback]

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Guests: Diane Swonk Chief Economist for Mesirow Financial, Peter Schiff, President, Euro Pacific Capital
Peter Schiff: “Inflation is probably one of the most misunderstood words in the English language. Webster’s definition of inflation is: “An abnormal increase in available currency and credit beyond the portion of available goods, causing a sharp and continuing rise in price levels.” It properly defines inflation as an expansion of the supply of money and credit. It mentions the result of inflation, which is rising prices. But that is the result, not inflation itself – in fact, if you get an earlier definition from Webster’s, it doesn’t even mention prices.”

Diane Swonk: “The reality is that we can’t count money supply any longer, especially in the global economy. Even the Fed no longer counts money supply and relies on it as a reliable indicator; so although in theory all your talk may be correct, in the application, it’s not very useful for monetary policies.”

Peter Schiff: “Let’s go back to the 1990’s. The Fed created a lot of inflation. What Americans did with their money, is they spent it on imported products, because America lacked the industrial capacity to produce those products ourselves. So money went abroad. That kept the lid on prices. But it didn’t end there. Foreigners, used those dollars, that we created to bid up U.S. stocks. They invested in our stock market. That produced rising stock prices that was inflation. When the stock market bubble burst, foreigners then recycled those dollars into the bond market, that produced a rise in bond prices,, it dropped interest rates, allowing Americans to bid up real estate prices. Americans then used their added home equity to borrow more money and send more dollars abroad which foreigners used to bid up natural resource prices that were necessary in the production process. So, rising stock prices, rising real estate prices, rising commodity prices are all a result of the inflation that the Fed has been creating.”

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Peter Schiff is an American investment broker, author, financial commentator, and was a candidate in the 2010 Republican primary for the US Senate.

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